NEW YORK: US Treasuries fell on Wednesday as profit-taking and selling to make room for upcoming seven-year supply overshadowed the Federal Reserve's pledge to hold short-term interest rates near zero.
The Fed's increase to its inflation forecasts also hurt the market, hammering the 30-year bond by more than 1 point.
Fed Chairman Ben Bernanke's first-ever news conference after a policy meeting produced no surprises, as he spoke about the economy and monetary policy.
Long-dated Treasuries trailed short-dated issues on worries that the Fed's adherence to ultra-loose policy to promote jobs and economic growth could leave inflation unchecked.
"With the front-end effectively anchored with the continued inclusion of extended period language, it seems the potential for an inflation wildcard, most likely in the form of commodity prices and oil, could be the dominant curve trade over the near term," said Christian Cooper, head of US dollar rates trading at Jefferies & Co. in New York.
Wednesday's sell-off snapped the market's three-session winning streak that pushed yields to one-month lows on Tuesday. Traders reduced their curve bets on long-dated bonds that were based on expectations that inflation will remain tame despite rising oil and commodity prices.
On Wednesday, Fed policymakers acknowledged inflation pressure from rising commodity prices, but downplayed its impact as "transitory." They maintained inflation expectations have remained "stable."
Just before Bernanke started his press conference, the US central bank released its latest economic forecasts. It now sees core inflation running at 1.3 percent to 1.6 percent in 2011, higher than the previous range of 1.0 percent to 1.3 percent.
The 30-year bond, which is most vulnerable to the market's inflation outlook, fell 1-3/32 to yield 4.46 percent, up from 4.39 percent late on Tuesday.
Benchmark 10-year notes shed 12/32 for a yield of 3.35 percent, up 3.31 percent on Tuesday.
Other market inflation measures ended flat to higher on the Fed's latest inflation forecasts after falling earlier on the perceived dovish slant in the Fed's policy statement.
The 10-year breakeven rate, or the yield spread between 10-year Treasury Inflation-Protected Securities and regular US government debt, was steady at 2.60 percentage points.
Earlier, investors making room for $35 billion of five-year notes and a stronger-than-expected report on durable goods orders exerted initial downward pressure on bond prices.
Bond prices bounced up from session lows after the latest five-year note auction, part of this week's $99 billion in coupon supply, was not as weak as some had feared.
On Thursday, the Treasury will sell $29 billion worth of seven-year notes, whose yield was 2.75 percent in when-issued trading.
Investors will also receive the government's first reading on the gross domestic product and economy-wide inflation in the first quarter.
Economists polled by Reuters had predicted first-quarter GDP likely slowed to an annualized rate of 2.0 percent from 3.1 percent in the fourth quarter.
The core rate on personal consumption expenditure, the Fed's preferred inflation gauge, likely accelerated by a 1.4 percent pace in the first quarter, compared with 0.4 percent in the prior quarter.
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